The Schiehallion Fund, SpaceX and More
Unusual Name, Unusual Fund, Unusual Opportunity
DISCLAIMER & DISCLOSURE: The author, James Emanuel, holds no position in the Schiehallion Fund at the date of publication but that may change. The views expressed are those of the author and may change without notice. The author has no duty or obligation to update this information. Some content is sourced from third parties believed to be reliable, but accuracy is not guaranteed. Forward-looking statements involve assumptions, risks, and uncertainties, meaning actual outcomes may differ from those envisaged in this analysis. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing.
Why Should I Care About the Schiehallion Fund?
I usually focus on individual stocks, but today, I’m making an exception. Why? Because the Schiehallion Fund (MNTN.L) from Baillie Gifford offers something unique - access to high-growth private companies that most investors can’t touch.
Ever wanted to invest in SpaceX, Databricks, or Stripe? Normally, you’d be out of luck since these companies aren’t publicly traded. But Schiehallion makes it possible.
Public market investors risk missing out on enormous growth happening behind closed doors. But the Schiehallion Fund offers a way in. If you’re interested in cutting-edge, high-growth companies, this might be one fund worth paying attention to.
The Schiehallion Fund focuses on long-term minority investments in later-stage private businesses with transformational growth potential. So, if you are interested in gaining exposure to market leading private businesses, read on.
The Problem: Companies Are Staying Private Longer
A major shift is happening in the investment world—companies are delaying their IPOs.
In 1980, the median age of a company at IPO was just 6 years.
By 2021, that number jumped to 11 years—and for tech companies, it’s now over 12 years!
Why? There are three primary reasons:
More private capital is available than ever. Between 2002 and 2019, late-stage private investments skyrocketed from $14.2 billion to $80 billion. This means companies can raise funds privately instead of going public.
Public companies face increased regulatory burdens, including higher costs associated with compliance, disclosure requirements, audits, and investor relations.
Some companies are choosing not to list at all. Public markets come with challenges - extra scrutiny, shareholder pressure, and distractions that can hurt long-term performance:
Consider Ingvar Kamprad, the legendary founder of IKEA. Kamprad deliberately avoided taking the company public, believing that the stock exchange posed too high an opportunity cost. Shareholders typically demand significant profit distributions through dividends, which Kamprad recognized would limit the company’s ability to reinvest in its own growth.
A similar story can be seen with Richard Branson and the Virgin Group. Branson listed Virgin on the London Stock Exchange in 1986 but chose to take the company private again just two years later. His reasons were compelling. The strict governance requirements of a public listing introduced layers of bureaucracy that slowed decision-making, replacing the agility that had been pivotal to his success with a cumbersome committee-driven process involving unhelpful, but legally required, non-executive directors. Branson also grew frustrated with the short-term mindset of public market investors, who prioritized meeting quarterly and semi-annual reporting targets over ensuring the company’s long-term growth and prosperity. By returning Virgin to private ownership, Branson regained the flexibility to make long-term strategic decisions, enabling the company to accelerate its growth trajectory.
Ultimately, the equity market exists as a capital-raising mechanism. If a business can secure the capital it needs without going public, why not?
This brings us back to the Schiehallion Fund, which offers a unique opportunity for public market investors to gain exposure to private enterprises. While the fund may retain positions in companies after they go public, it does not take new positions in publicly listed businesses.
This focus on private companies provides investors with access to the growth potential of enterprises unconstrained by the demands of the public markets. Some of its holdings may remain private indefinitely, while others may simply remain private for longer.
While the fund traded at a premium to its net asset value (NAV) from inception in 2019 until mid 2022, over the past two years it has been trading at a discount. The fund is currently trading at what Baillie Gifford measures to be a 25.5% discount to its NAV - see chart below depicting share price in blue vs NAV in red (calculated in accordance with industry practice).
Top Holdings (January 31, 2025)
The following table lists the most valuable fast growing private tech companies in the world currently:
Now take a look at the top ten holdings of the Schiehallion fund and you will spot many of them:
Space Exploration Technologies (SpaceX): 9.4% of total assets - Elon Musk’s space business (more on this below)
Bending Spoons: 8.1% of total assets - focused on acquiring digital tech businesses that have already proven their market fit, with substantial untapped potential that can be exploited with the capital provided by Bending Spoons. The company has been profitable since its inception in 2013 (a rare trait in the tech sector).
Bytedance: 6.2% of total assets - the parent company of TikTok and other successful apps like Toutiao and Douyin. Despite regulatory challenges, its domestic Chinese businesses generate substantial cash flows, providing a strong growth foundation.
Wise: 6.1% of total assets -a financial technology company that has already listed publicly but continues to be held by the fund due to its growth potential
Affirm: 5.8% of total assets - a financial technology company that has shown strong fundamental and share price growth. It remains one of the fund's high conviction holdings
Tempus AI: 3.4% of total assets - a data and artificial intelligence healthcare platform that has achieved strong top-line growth, improved gross margins, and enhanced operational efficiency
Stripe: 2.9% of total assets -a payment processing company
Databricks: 2.8% of total assets -a data analytics and AI company
Wayve: 2.6% of total assets - an autonomous driving technology company
Warby Parker: 2.6% - a manufacturer and retailer of prescription glasses, contact lenses, and sunglasses
This top 10 accounts for 49.9% of the portfolio. Other smaller holdings in the portfolio include Epic Games, the firm behind the hit video game Fortnite and, more importantly, the creator of the Unreal Engine - a cornerstone in both the gaming and entertainment industries. This name is also on the list at the top of this section.
Essentially, this fund gives an investor exposure to this segment of the market which is not otherwise available to public market investors.
SpaceX
SpaceX is all about pushing the boundaries of space technology, cutting the costs of space travel, and, one day, helping humans live on other planets. Sounds like science fiction, right? But they’ve already pulled off some game-changing feats, including reusable rockets like the Falcon 9. Sure, we’re not quite ready to settle on Mars or book space vacations, but SpaceX has some solid ways to make money in the meantime.
Take Starlink, a satellite internet service run by a SpaceX subsidiary. The goal? Deliver affordable, high-speed internet to remote and underserved areas using thousands of small satellites in low Earth orbit. Each satellite has a lifespan of about five years and is designed to burn up upon re-entry, minimizing space debris. It aims to provide global high-speed internet coverage, particularly targeting remote and underserved areas. As of April 2024, it serves nearly 2.5 million customers across more than 70 countries. While not intended to compete in urban markets, Starlink effectively addresses connectivity gaps in remote or disaster-stricken areas (for example, in restoring connectivity during conflicts or natural disasters that disrupt conventional networks.) With over a third of the global population lacking internet access, Starlink's technology presents a significant opportunity to bridge the digital divide. Elon Musk, CEO, has suggested SpaceX will spin off Starlink with a stock market listing once it “can predict cash flow reasonably well”.
Then there’s the Transporter Rideshare Program, which offers an affordable way for companies and governments to launch satellites. It’s an efficient solution that’s been a hit so far, transporting the satellites of others into space.
Both Starlink and the Rideshare program are up and running, generating revenue and with a huge growth runway ahead.
Now, while SpaceX is still privately held, an IPO is likely in the next few years. If you’re eager to get in on the action, check out the Schiehallion Fund - it’s a great way to gain indirect exposure to this groundbreaking company on a pre-IPO basis.
Based on a recent secondary share sale at a unit price of $185, the implied post-money value of SpaceX currently stands at around $350 billion, solidifying its status as the world's most valuable private startup.
Is this valuation reasonable? It is extrapolated from the sale of only $1.25 billion shares, so the implied valuation is based on only 0.35% of shares in the business. Could it achieve a similar price for 100% of the shares? It’s a rhetorical question, but one that investors ought to consider.
Against unit economics, in 2023, the company is estimated to have generated $8.7 billion in revenue, almost double its $4.6 billion in 2022. so top line growth is impressive, but a $350 billion valuation implies that it trades at over 40x sales - which makes my eyes water. However, if SpaceX continues at this growth rate for another three years we are looking at a forward multiple of a more modest 5x.
The development and use of reusable rockets save up to 65% on launch costs by spreading fixed costs across multiple launches. The cost per kilogram to orbit has dropped dramatically, from $87,000 in 1960 to around $4,000 in 2023. This gives SpaceX a huge competitive advantage.
SpaceX's gross margin is estimated at around 39% for its main products and services. However, R&D spending and CAPEX is high - an investment for the future - which means that profitability is still someway off. As such the company still depends heavily on additional funding as its cash flows remain negative.
This also raises questions around the company’s very unpredictable CEO who, despite his genius, is often best described as a maverick. Elon Musk has undeniably been the driving force behind SpaceX's technical success to date. However, his approach and personality are not always conducive to optimizing shareholder returns:
Musk's outspoken nature, particularly on social media and his entry into the political realm, has strained important commercial relationships and are alienating customers. This was discussed in great detail in this post for anyone interested:
Taiwan’s efforts to enhance its mobile and internet infrastructure to reduce vulnerabilities to a potential Chinese attack have lead its government to seek out satellite-based communication solutions. One might assume Starlink, SpaceX’s satellite internet service, would be the natural partner of choice. However, due to Musk’s controversial comments favouring China in the Taiwan sovereignty dispute, Taiwan explicitly ruled out Starlink as an option. Taiwan is now in discussions with Amazon’s satellite subsidiary, Project Kuiper. This represents a significant win for Jeff Bezos and a corresponding missed opportunity for SpaceX investors.
Similarly, Ontario in Canada recently cancelled its $100 million CAD Starlink contract, citing dissatisfaction with Musk's political behavior.
The European Union is in discussions with four European satellite internet providers to explore alternatives to Starlink for Ukraine’s defense forces. Negotiations are underway with Luxembourg-based SES, Spain’s Hisdesat, British company Viasat, and the French-British operator Eutelsat/OneWeb.
Musk’s pursuit of ambitious, high-risk projects also presents challenges for SpaceX's financial prospects in the short to medium term. For instance, the Polaris Program aims to send private citizens into the radiation belt, higher than any human has gone since the Apollo missions, to validate deep-space technologies such as advanced spacesuits and life-support systems. Similarly, Starship, SpaceX's fully reusable spacecraft designed for missions to Mars and beyond, is another costly endeavour. While these initiatives push the boundaries of space exploration, they lack immediate commercial benefits, consuming capital and potentially necessitating further fundraising and shareholder dilution.
In contrast, Jeff Bezos has taken a more pragmatic and investor-friendly approach by clearly separating his personal ambitions from commercially viable operations. Blue Origin, his privately funded space exploration company, reflects his passion for advancing humanity’s presence in space. Meanwhile, Project Kuiper operates as an Amazon subsidiary with a focus on delivering commercially viable global broadband services. By leveraging Amazon’s infrastructure and maintaining clear boundaries between personal projects and shareholder-focused initiatives, Bezos demonstrates a more disciplined and strategic stewardship style.
Ultimately, Bezos's approach highlights a careful balance between pursuing visionary goals and delivering tangible value to investors, a contrast to Musk’s more cavalier and risk-intensive strategy.
Why is Musk intent on missions to Mars and focused on developing technology for people to venture into the radiation belt? The ultimate goal is to make humanity multi-planetary, and this idea may not be as far-fetched as it seems. This doesn’t imply that we will all be living on a different planet in the near future or taking vacations across the universe. Instead, the focus is on expanding commercial activities in space.
Conditions that are painstakingly created in laboratories, such as those needed for manufacturing semiconductors - vacuum environments, low or no gravity, stable temperatures, and cleanliness (free of impurities and dust) - already exist naturally in space. Similarly, space offers unique opportunities for data centers. These centers require constant power, which can be supplied efficiently through uninterrupted solar energy in space. Additionally, space provides passive cooling methods ideal for dissipating the vast amounts of heat generated by data centers.
This medium to long-term vision highlights the immense potential of space as a platform for advanced technologies and industries. However, accurately modeling such a venture is impossible, making SpaceX’s approach no more than a roll of the dice. This is speculative risk-taking by management largely funded by capital provided by others. While it could yield significant rewards, there’s also the risk it could mirror the trajectory of the railroad revolution two centuries ago - the concept was sound, but early entrants often exhausted vast amounts of capital on infrastructure, ultimately becoming insolvent and paving the way for more those that entered the industry later to capitalize on their efforts and prosper.
The company's innovative business model, vertical integration, and strategic expense management have enabled it to achieve a competitive edge and drive significant growth in the space industry. However, the ongoing need for additional funding to support its ambitious projects remains a critical factor to monitor.
Stripe
In contrast to SpaceX, the payment company Stripe is robustly cash flow positive and this financial stability allows the company to invest in long-term growth without immediate reliance on capital markets.
Stripe operates as a full-stack solution, acting as both a payment gateway and a merchant account. This integration simplifies the payment process for businesses by eliminating the need for a separate merchant bank account.
In 2023 it exceeded $1 trillion in total payment volume processed, marking a 25% increase from the previous year - so growth is also robust.
The company continues to innovate, with a focus on long-term growth and meeting the future needs of its users.
Stripe's valuation has stabilized at $70 billion after significant fluctuations, and the company continues to demonstrate strong financial performance, robust revenue growth, and a solid market position. Its innovative products and global expansion strategies position it for continued growth and influence in the fintech sector.
Who Are Baillie Gifford?
Baillie Gifford is a highly regarded British investment management firm, founded in 1908 in Edinburgh, Scotland, by Colonel Augustus Baillie and Carlyle Gifford. The firm is known for its long-term investment approach, seeking out game-changing companies and assets that can sustain growth over decades.
The firm is characterized by being "curious, patient, and brave," looking through short-term market noise to identify opportunities for long-term growth.
The Schiehallion Fund is the Baillie Gifford private enterprise fund.
The fund is managed by Peter Singlehurst and Robert Natzler.
Singlehurst joined Baillie Gifford in 2010 and has since become a partner and the head of Private Companies investing. He helped establish and lead Baillie Gifford’s private companies team in 2017 and then established the Schiehallion fund in 2019.
Natzler was initially involved with emerging markets, then focused on private companies research before pairing with Singlehurst to manage the Schiehallion fund.
Here is Singlehurst explaining how he thinks about private versus public companies in terms of his investment philosophy:
In this video, Singlehurst neglects one very important aspect of private market investing - liquidity on the buyside of the market. By virtue of there being far fewer investors because shareholdings are not available to the public, only to a select few funds, pricing is often far more attractive. In other words, the irrational exuberance that often prevails in public markets is entirely absent.
Singlehurst focuses on companies with:
Sustainable revenue growth regardless of market cycles
High gross profit margins
Significant reinvestment in research and development
Profitability and excess cash generation
Transformational growth potential and the likelihood of becoming publicly traded
The Schiehallion fund, traded in US dollars - which is unusual for a British fund, has assets under management of approximately US$1.29 billion as of the latest available data.
The fund launched with a share price of $1.14 in 2019, it peaked at $2.87 in the irrational exuberance of 2021 following the Covid19 pandemic, but dropped back to below its IPO level. Why? The past couple of years has been characterized by geo-political tensions, inflationary pressures, higher interest rates, increased cost of borrowing, and a recessionary environment. Although inflationary pressures have begun to ease, these factors have collectively contributed to a challenging economic and market environment. This significantly impacted appetite for higher risk investing. It should be noted that the entire private equity sector has been negatively impacted by prevailing market conditions, but the Schiehallion fund fared far better than most, testament to its very robust portfolio.
The Schiehallion portfolio consists of premium names and it is trading at a discount to calculated NAV, so there appears to be a margin of safety in the discounted price. Gifford Baillie certainly believe this to be the case. In November 2023, the Board announced a capital allocation update stating that it believed that the Ordinary Shares represented an attractive investment opportunity at a deep discount to NAV and that it would embark on share buybacks and have bought back over 3.5 million shares since that date.
What’s The Strange Name of this Fund?
The Schiehallion Fund is named after Schiehallion, a mountain located in Perthshire, Scotland. This mountain has historical significance in the field of science, as it was the site of a famous experiment conducted in the 1700s to determine the mean density of the Earth.
The choice of this name for the fund likely reflects its Scottish roots, as Baillie Gifford, the investment management firm behind the Schiehallion Fund, is based in Edinburgh, Scotland.
The name may also symbolize the fund's ambition to reach new heights in investment by positioning itself at the leading edge of innovation and technology.
Is the Schiehallion Fund a Good Investment?
The Schiehallion Fund is not a venture capital fund, nor does it focus on early-stage investments or take controlling stakes in private companies to drive growth. Instead, it targets later-stage companies with substantial revenues, acquiring minority stakes. This approach allows the fund to invest in firms that are already established and generating significant income. One of the fund's core principles is its belief in the high-growth potential of strong private market companies.
According to Singlehurst, “At the stage we invest, the companies are normally generating substantial revenues. Many of the companies are profitable, fast-growing and have proven product-market fit.”
The fund benefits from the growing trend of start-ups staying private for longer. This allows them to focus on sustainable growth without the pressures and distractions often associated with public markets. Singlehurst explained, “They can maintain a small, concentrated, aligned group of shareholders, focus on their operations and the long-term vision [and] …everything else being equal, they can build better businesses by staying private for longer, with higher probabilities of success.”
Baillie Gifford, the fund manager, has a strong track record of successfully navigating private markets. The Schiehallion Fund offers investors the chance to gain exposure to some of the most exciting and best run private companies at significant discounts, setting it apart from other growth-oriented investment trusts.
Despite its appeal, caution is warranted due to the fund’s relatively short track record. However, its performance to date and the expertise of its management team suggest it could be a compelling option for those seeking to diversify into private markets. Singlehurst’s personal confidence in the fund is notable; although he did not specify an exact figure, he revealed, “I have a significant portion of my own wealth invested in the fund that I manage.”
I’m not invested for a couple of key reasons.
First, on a personal level, I avoid investing in Elon Musk’s companies. For me, strong and trustworthy management is the most important factor in any investment. I need to understand and have confidence in the person leading the company, and that’s just not the case with Musk.
Second, there’s not enough financial data available on these private companies for me to calculate a reliable sum-of-parts valuation. I brought this up with Singlehurst, the fund manager, but the information that he has been given by the companies in which he has invested is not his to share - confidentiality clauses prevent him from sharing it. That means I’d have to invest on blind faith and rely on the industry’s NAV calculation methodology - which I dislike (but that’s a discussion for another time).
Of course, you may see things differently. This could be the perfect addition to your portfolio!
